Prime Minister Paavo Lipponen at the European forum Wachau 2002 Göttweig Austria, 30 June 2002

It is a great pleasure and honour for me to speak at the European Forum in Wachau. Having seen Melk monastery by Prandtauer and Göttweig with works of Hildebrandt is like having made a pilgrimage to the heart of European civilization.

Central Europe is a concept that has always fascinated me. In the new Europe, this concept comes alive in a positive way without imperialism and suppression. The region around the great Danube in the Pannonian basin can become an area of prosperity and stability.

Active participation in the development of the Union gives Austria and Finland a good possibility to offer a valuable contribution to the debate on the future of the Union. I would especially like to thank Federal Chancellor Wolfgang Schüssel personally for the excellent cooperation we have had in European issues.

What do we mean by "a United Europe"? Is it shorthand for the present European Union of sovereign Member States or is it a wider European Union, where the present nation States have disappeared? Or is it a vision of Europe, which does not end with the EU?

In this context of regional cooperation I would broadly define a United Europe as a continent living in peace, enjoying equally distributed economic prosperity and sharing the same basic human rights and values while respecting cultural and religious diversities.

In any vision one of Europe's strengths will be its regions. Here I refer to regions both inside the nation States and transcending the borders of the Member States inside the European Union, and to regions linking the EU with its neighbours in the North, the South and the East.

Among the many questions posed by the Laeken Declaration at least two referred directly to the regions:

- Should not the day-to-day administration and implementation of the Union's policy be left more emphatically to the Member States and, where their constitutions so provide, to the regions?
- How to prevent an encroachment upon the exclusive areas of competence of the Member States and, where there is provision for this, regions?

The word "region" can describe a variety of constitutional solutions such as states within a federal system or an autonomous province within a unitary state. Austria provides a good example of the former while Finland has within its borders the Åland Islands with an internationally guaranteed autonomy. The common feature of such regions is their exclusive legislative competence in certain clearly defined fields - a competence that is jealously guarded by them.

The reasons for regional autonomy can largely be found in the same motives that now drive the process of reforming the Union: the quest for democracy, the need to bring the Union closer to its citizens and place decision-making at the level where the needs of the citizens can best be taken into account.

We do not, however foresee a Union fragmented into regions. For a long time ahead the nation States will remain the building blocks of the Union. There is nosubstitute for them. Democracy on the Union level is equally dependent on the functioning of the political systems of the Member States, more precisely on a close interplay between national governments and parliaments in the formulation of EU-policy. Again, there is no substitute for this fundamental democratic process.

What we now seek from the Convention and the next IGC is a comprehensive view of what we expect from the Union and what competences the Union needs to fulfil these expectations. A clear and transparent division of competences between the Union and its Member States will also safeguard the interests of self-governing regions, protecting them from an erosion of their legislative competences by stealth. It is, however, up to the Member States, not to the Union, to define and regulate the position of such regions within their constitutional systems.

Consequently the views of a self-governing region will primarily be heard through the voice of the Member State concerned. How strongly it is heard is a measure of how well democracy works. But there are also more direct channels. One is the Committee of the Regions, which expresses the collective views of regional and local bodies. I do not believe that decision-making in the Union should be further complicated by giving the Committee a more formal role in the legislative process. The quality of its work, the ability to articulate the common interests of the regions of the Union over and beyond national considerations will be decisive for the influence of the Committee.

Where we need to listen to the voice of the regions much more closely than at present is in the preparation of legislation. Good EU-law must provide equal conditions throughout the Union for citizens and companies. It must also take regional and local considerations into account. It is not easy for the Commission to find the right balance, and it is too easy for the Council and the European Parliament to upset that balance when amending a proposal.

The key to success lies in better preparation, in a thorough impact assessment of any piece of legislation. For this a wide process of consultation with regions, local authorities and civic organisations is needed.

I have so far concentrated on the role of the regions in strengthening democracy on the national and Union level. When we talk about regions in the economic sense we transcend national borders. The Union in itself is a vast economic region. In fact one central purpose of the Union is to do away with national borders and let economic regions shape - often reshape - themselves through the freedom of movement and establishment. This, however, presupposes a functioning internal market, where all Member States are genuinely providing the same conditions for companies and individuals. Here we have quite some way to go yet, but the future clearly belongs to economic regions with well functioning markets for e.g. energy, transport and communications.

Economic regions, however, are not defined by the external borders of the Union. Up in the very north of Europe, in Lapland there is from prehistoric times on a well established economic market between the Swedish and the Finnish side of the river Tornio. That is but a small part of the close economic ties between the three Nordic members of the EU and between all the five Nordic countries. They again form a natural part of a larger economic region around the Baltic Sea, which in a broader sense is the geographical definition of the Northern Dimension of the European Union. Similar examples of natural, sometimes historical economic regions can be found in the Mediterranean area and in Central Europe around Austria.

Enlargement is the key priority for the Union. Incorporating Central and East European countries into the Union will be a decisive step in the post Cold War integration of Europe. The process of political change that started over ten years ago created opportunities that the Union should now seize uponfully through enlargement. The remains of the Cold War are being removed as the continent gradually unifies around the European Union.

In Copenhagen we must see the conclusion of negotiations with up to ten candidates. But the process of enlargement will continue. After the present process is completed with the accession of Romania and Bulgaria sometimes towards the end of this decade we will have to deal with the application of Turkey and face the challenges in the Western Balkans. The stabilisation and association process should pave the way for the countries in the Western Balkans to join the European Union in the not too distant future.

The political volatility and fragile institutions in this region make integration a challenging process. At the same time we must hold on to this strategic goal. The fundamental aim of securing peace and stability in Europe means that the Union must shoulder her responsibility in integrating Western Balkan countries into the Union.

Enlargement of the Union must be paired with the strengthening of Union's relations with the so-called new neighbours like Ukraine. The political and economic weight of the Union has to be reflected in an increasingly active role globally. The Union must advocate openness of the world economy and play a leading role in global negotiation processes.

The debate on the future of the EU is gaining momentum. I'm convinced that the work of the Convention will be of utmost importance and a building block when we are preparing ourselves for the next Intergovernmental Conference.

As the number of Member States nearly doubles within a decade we will see not only a greater variation in interests and political goals, but also a growing burden on the decision-making capacity of the Union. If the Union is to remain an effective and responsive political actor, we must continuously trim its decision-making.

The Sevilla European Council took some important decisions in reforming EuropeanCouncil meetings and the work of the Council. These decisions need to be implemented immediately. In Sevilla the Member States also mandated the Danish Presidency to present a report on the debate on the Presidency.

At the same time as we are encouraging debate, we should make sure that the agenda of the Future Convention is not hijacked by the Heads of State and Government. The European Council should not draw hasty conclusions on organising the Presidency of the Union. We need to take a close look at the whole institutional structure, including the Council, the Commission, European Parliament and the national parliaments.

At issue here is not only how to reorganize the Presidency in a way that guarantees the equality of Member States. We must also be concerned about institutional balance, particularly the role of the Commission.

In the past few years we have made a lot of progress in strengthening the Union through the internal market regime. But we can also detect growing tendencies among big Member States to create structures - formal or informal - that would give privileges to some members. If this trend continues, we will have a European Union with different rules of the game for Member States according to size and, possibly, geographical location. That, in turn would destroy what is our major achievement, the internal market, and seriously undermine Europe’s competitiveness.

At the Lisbon European Council in year 2000 we adopted a strategy aiming at making Europe the most competitive and dynamic knowledge-based economy in the world. The internal market and the successful introduction of the euro have produced good results for Europe and the Lisbon process is a logical continuation to that project. The idea is to find a strategy that takes into account the changes that are taking place in our economic environment both in Europe and globally. It is about creating new and better jobs and making sure that the European social model has a soundfinancial base also in the future.

Since Lisbon we have made progress in many sectors, but more is needed. Boosting Europe's competitiveness is an effort over a long period. The building of confidence in stable long-term growth is a crucial aspect on this policy. The Stability and Growth Pact plays a central role in securing that confidence. It should be kept in mind that the SGP is a political commitment which, on the one hand, aims at enhancing the overall credibility of economic policy in the monetary union, and on the other hand, aims at preventing irresponsible behaviour which would be to the cost of all of us.

From a macroeconomic point of view, the European economy is well placed for growth. We have good external balance, subdued inflation and healthy private sector balance sheets. But there is still a lack of confidence, which prevents Europeans from spending, and growth in the European economy is highly dependent on the rest of the world. In order to enhance confidence, we need to be able to provide European consumers and investors with clear guidance as to our future policy intentions. The recent discussions, which suggest continuous changes to our rules, are certainly not helpful in this respect. On the contrary, they risk further undermining confidence.

Moreover, our European economic experience shows clearly enough that deficit spending has never been a source of growth and prosperity. On the contrary, we achieved by far the best performance in the latter part of the 1990's, when our efforts were concentrated on reducing public sector deficits. These policies should not be pursued because there is a Stability and Growth Pact. The Stability and Growth Pact is there because we think that the policies it prescribes is basically good for growth. This seems to be forgotten in the debate in some countries and some media.

It has never been difficult for us Finns to understand the link between stability/sustainability of public finances and economic growth. This economicpolicy orientation is based on the experiences gained from the crisis in the beginning of the 1990's. SGP was never an excuse to consolidate the public finances. We set those targets - or even more ambitious targets - already before our accession to the union. The long-term sustainability requirement has been toughened by the ageing population, which is not only a Finnish problem.

The recent strengthening of the euro is welcome, even if it reflects more the relative weakness of the dollar, as the imbalances in the US economy have started to influence the confidence of investors. These exchange rate movements will support domestic demand in Europe and contribute to price stability, as long as the movements take place in an orderly way. But, as always, the exchange rate movements and their timing are impossible to forecast.

While we are trying to boost confidence in the European and world economy, we are struck by fresh news of major companies tampering with their books. We must take determined action to prevent such criminal activities through better legislation and controls. But the business community must take seriously the lack of cooperate ethics that these cases demonstrate. Otherwise investors and consumers will loose confidence with potentially serious consequences for our economies.

The Union now has both a Southern dimension - its Mediterranean policy - as well as a Northern Dimension, which contributes to the reinforcement of positive interdependence between the European Union, Russia and other states in the Baltic Sea region. Finland sees these policies as mutually supportive - stability and cooperation on its northern borders will also strengthen the Union in the South.

With enlargement there will also be a Central European dimension. Austrian leadership has played and will play a central role in bringing this region together. We should do more to network other regions, such as the Nordic and Baltic region of eight countries and Benelux with Central Europe. I believe we share many common interests, not least in defending small and medium size countries' interests in a new, united Europe.